The Real Effects of Financial Constraints: Evidence from a Financial Crisis

NBER Working Paper No. w15552

Number of pages: 38Posted: 08 Dec 2009Last Revised: 05 Sep 2010

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Date Written: December 2009

Abstract

We survey 1,050 CFOs in the U.S., Europe, and Asia to assess whether their firms are credit constrained during the global credit crisis of 2008. We study whether corporate spending plans differ conditional on this measure of financial constraint. Our evidence indicates that constrained firms planned deeper cuts in tech spending, employment, and capital spending. Constrained firms also burned through more cash, drew more heavily on lines of credit for fear banks would restrict access in the future, and sold more assets to fund their operations. We also find that the inability to borrow externally causes many firms to bypass attractive investment opportunities, with 86% of constrained U.S. CFOs saying their investment in attractive projects was restricted during the credit crisis of 2008. More than half of the respondents say they will cancel or postpone their planned investment. Our results also hold in Europe and Asia, and in many cases are stronger in those economies.

Campello, Murillo and Graham, John Robert and Harvey, Campbell R., The Real Effects of Financial Constraints: Evidence from a Financial Crisis (December 2009). NBER Working Paper No. w15552. Available at SSRN: https://ssrn.com/abstract=1518745

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